The Facts

The health care reform plan put forth September 16, 2009, by Senator Max Baucus (D-MT), Chair of the Senate Finance Committee, contains revenue raising proposals, along with savings from Medicare and Medicaid, that together would finance the expected $774 billion cost of reform over 10 years. Following are highlights of the revenue raising provisions in the Baucus plan:

  • Impose an excise tax of 35 percent on insurance companies and plan administrators for health insurance plans above the threshold of $8,000 for individual coverage and $21,000 for family coverage, to raise $214.9 billion over 10 years.
  • Limit the amount of contributions to health flexible spending accounts to $2,000 per year, to raise $16.5 billion over 10 years.
  • Eliminate the deduction for the subsidy for employers who maintain prescription drug plans for their Medicare Part D eligible retirees, to raise $4 billion over 10 years.
  • Conform the definition of qualified medical expenses for health savings, health flexible spending accounts and health reimbursement arrangements to the definition used for the itemized deduction, to raise $5.4 billion over 10 years.
  • Increase the penalty for distributions from health savings accounts prior to age 65 not used for qualified medical expenses from 10 to 20 percent raises $1.3 billion over 10 years.
  • Require information reporting for businesses that pay corporate providers of property and services any amount over $600, raises $17.1 billion over 10 years.
  • Impose non-deductible annual flat fees on pharmaceutical manufacturers and importers, health insurance providers, clinical labs and medical device manufacturers based upon relative market share, to raise $93.2 billion over 10 years.

What’s at Stake

  • Insurance coverage limits may be reduced to avoid the 35 percent excise tax.
  • The costs of pharmaceutical drugs, insurance lab work and medical testing fees could increase as a result of any new fees imposed on these companies.

Steps to Consider

  • Affected entities should carefully evaluate the impact of the proposed new taxes and fees.
  • In addition to the revenue raisers included in the Chairman’s mark, additional revenue raisers will likely be offered during Finance Committee consideration of the legislation as any amendments offered must included offsets to pay for the cost of the amendment.
  • The financing mechanisms selected by the Finance Committee merit serious review. The mechanism contained in the House health reform bill (an income tax surcharge on families with incomes above $350,000 and individuals with incomes about $280,000) will likely be significantly scaled back, giving more prominence to the Finance Committee’s proposals.